Doing business in 2019 CONTENTS

Disclaimer

This Guide includes information obtained or derived from a variety of publicly available sources. PwC has not sought to establish the reliability of these sources or verified such information. All such information is provided “as is” and PwC does not give any representation or warranty of any kind (whether expressed or implied) about the suitability, reliability, timeliness, completeness and accuracy of this publication. This publication is for general guidance only and should not be construed as professional advice. Accordingly, it is not intended to form the basis of any decision and you are advised to seek specific professional advice on any transaction or matter that may be affected by this publication before making any decision or taking any action.

PwC | Doing Business In Malaysia 2019 2 Foreword CONTENTS

Malaysia has over the last 60 years developed Since its change of government in May 2018, the Malaysia, an from a primary commodities exporter (e.g. oil and new government has spearheaded multiple gas and ) to a strong industrial base for initiatives to improve governance of public attractive multinational corporations in electrical and institutions. With these reforms, the government is electronics, and petroleum and chemical products. focused on instilling confidence among foreign regional hub for investors with greater transparency and In the last decade, as it moved up the industry accountability. value chain, Malaysia has emerged as an services attractive regional hub for services, including This Guide has been prepared to assist those financial services, information and interested in doing business in Malaysia. The communications technology (ICT) and logistics coverage of the subjects is not exhaustive but is sectors. intended to deal with some of the more important and/or broad questions that may arise. Malaysia is increasingly being recognised as an innovative international Islamic financial centre. It The material contained in this Guide is based on is also emerging as a springboard for regional legislation as at 31 March 2019, unless otherwise expansion into Association of Southeast Asian indicated. Nations (ASEAN) in view of its strategic, central location and multilingual “Truly Asia” mix of Malay, Chinese and Indian populace.

PwC | Doing Business In Malaysia 2019 3 Contents CONTENTS

Chapter 1 Chapter 2 Chapter 3 Chapter 4 Investment Business formation and the Labour relations and Audit requirements and environment regulatory environment social security accounting practices

● About Malaysia ● Business formation: types of business ● Employment regulations ● Statutory requirements for ● Location advantage entities ● Unions Malaysian-incorporated companies ● Conducive business environment ● The Federal Government of Malaysia ● Working conditions, wages / salaries ● Statutory requirements for foreign ● Sustainable economic ● Regulatory environment for companies and statutory contributions companies carrying on business environment ● Court system ● Foreign personnel within Malaysia ● Diversified international trade ● Intellectual property rights ● Financial Reporting Framework ● Principal government agencies ● Controls on foreign exchange ● Auditing requirements in Malaysia

Chapter 5 Chapter 6 Chapter 7 Business Taxation Personal Taxation Other Taxes

● Principal taxes ● Scope of taxable income ● Sales Tax ● Income tax ● Basis of assessment ● Service Tax ● Corporate tax system ● Residence status of individuals ● Import duties ● Tax administration ● Rates of tax ● Export duties ● Transfer pricing ● Employment income ● Excise duties ● Business reorganisations ● Exemptions and concessional tax ● Stamp duty ● Tax incentives treatment for expatriates ● Real Property Gains Tax ● Deductions ● Other levies and taxes ● Filing obligations and tax collection

PwC | Doing Business In Malaysia 2019 4 CONTENTS Chapter 1

Investment environment

PwC | Doing Business In Malaysia 2019 5 CONTENTS Investment environment

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About Malaysia

Located in Southeast Asia, Malaysia is a federal constitutional monarchy that shares Malaysia its borders with , , and Brunei. It has a total land size of Country Snapshot just under 330,000 km², similar to that of Japan, , Finland, Norway.

Ethnically, it has a diverse and multicultural population (a total population of 32.6 Average GDP growth million), consisting mostly of Bumiputera (Malays and other indigenous people), 329,613 km² followed by Chinese and Indians. total land size 5.2% per year over the last 5 years As a former British colony, English is one of the most widely-spoken languages, especially in business. The national language of Malaysia is Malay, or Bahasa Malaysia. It also follows that its political structure and legal framework are largely Population GNI per capita based on British systems. 32.6 million US$10,449 Malaysia is considered one of the most developed developing countries in the world, and is classified as an upper-middle income country, with a GNI per capita of US$10,449. Other countries in this category include Mexico, Turkey and . Majority race is Bumiputera, Average inflation In the past 5 years, it has had consistent growth with an average GDP growth of accounting for 5.2% per year. It has also maintained a steadily low inflation rate, an average of 2.4% 2.4% per year over the last 5 years. 68.8% over the last 5 years of the population

Sources: Department of Statistics Malaysia, EIU Viewswire, The World Bank, United Nations Statistics Division

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Location advantage Well-connected to major cities in Asia - within 8 hours flight from Mumbai in India to Beijing in .

8 hour flight

Centre of Southeast Asia - a market of 630 million people with a combined GDP of US$2.3 trillion 4 hour flight

Next to one of the world's busiest shipping lanes - Straits of , providing access to the global supply 2 hour flight chain via two key Malaysian ports, and Port of Tanjung Pelepas

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Conducive business environment

Second most developed and An easy and cost-competitive place Multiracial (multicultural) population, competitive country in Southeast for doing business - ranked 15th and a young workforce to support your Asia, 25th globally - based on World globally on Ease of Doing Business by regional operations (people, languages Economic Forum’s Global World Bank Group and social patterns). Its three main races Competitiveness Index 2018 comprises of Malay3, Chinese and Indian.

Upper-middle income country as Open to foreign investments - there is classified by The World Bank - GNI per a large presence of foreign companies capita of RM42,607 (US$10,449). (more than 5,000) here from more than The English language is commonly used in business On its way to becoming a ‘developed 40 countries, with a cumulative country’ (with a benchmark of US$12,055 investment (FDI stock) of US$144 2 GNI per capita), which The World Bank billion, as at June 2018 estimates will happen between 2020-20241. An established legal system - the Malaysian Constitution sets out the legal framework of the country. Malaysian law follows the legal system of the United Kingdom. 1 Source: World Bank (2017) Malaysia Economic Monitor, December 2017: Turmoil to Transformation: 20 Years after the Asian Financial Crisis, Washington, DC: The World Bank. 2 According to the International Trade and Industry Ministry of Malaysia and Bank Negara Malaysia (Malaysia’s central bank). 3 Malays share close similarities to Indonesians, e.g. in term of language and religion.

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Sustainable economic environment Stable economic growth and employment rate, despite the current global The economy is led by the services and manufacturing sectors, which is similar economic and trade uncertainty. to advanced economies.

Wholesales & retail trade - 15.6% Finance & insurance - 6.8% Information & communication - 6.3%

(a) actual (f) forecast Source: Bank Negara Malaysia Annual Report 2018 Source: EIU Viewswire

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Sustainable economic environment Low inflation and stable interest rates - provides for an accommodative High current account balance and trade surplus enhance the economy’s environment for doing business. capabilities to withstand external forex shocks.

(a) actual (e) estimate (f) forecast (a) actual (e) estimate (f) forecast Source: EIU Viewswire Source: EIU Viewswire

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Diversified international trade Malaysia’s Trading Partners - Exports by relative size A broad range of trading partners - largest trading partners by volume include China, Singapore and .

Malaysia is one of the most open economies in the world. It has the fourth highest trade to GDP ratio1 in East Asia partly due to its multiple Free Trade Agreements.

ASEAN Australia Chile

China India Japan

Korea New Zealand Pakistan

Turkey

EFTA EU Hong Kong

Iran RCEP

*under negotiation

1 Malaysia is ranked fourth in 2017, after Hong Kong, Singapore and Vietnam, according to Bank Negara Malaysia Source: Bank Negara Malaysia Monthly Statistical Bulletin, January 2019

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Principal government agencies

The following is a non-exhaustive list of government agencies that are most relevant to foreign investors:

Malaysian Investment Malaysian Economic Corridors Ministry of International Companies Commission Development Authority (MIDA) Trade and Industry (MITI) Malaysia (CCM) There are also various Economic MIDA provides assistance to companies Corridors with statutory bodies assigned This ministry has overall CCM acts as an agency to incorporate intending to invest in the manufacturing by the Federal government to encourage responsibility for all aspects of companies and register businesses as and services sectors as well as and drive development in specific regions international trade and industrial well as provide the public with company facilitates the implementation and in Malaysia. development. and business information. All companies operation of the projects. intending to do business in Malaysia are A full list of these Malaysian Economic Website: miti.gov.my required to register with the CCM. Website: mida.gov.my Corridors can be found in the website: mida.gov.my/home/malaysia-economic- Website: ssm.com.my corridors/posts/

PwC | Doing Business In Malaysia 2019 12 CONTENTS Chapter 2

Business formation and the regulatory environment

PwC | Doing Business In Malaysia 2019 13 CONTENTS Business formation and the regulatory environment

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Business formation: types of business entities A private company is one which is prohibited by its Two or more individuals or bodies corporate may form an articles of association to issue any invitation to the public LLP for any lawful business in accordance with the terms Types of entity to subscribe for shares or debentures of the company or of the LLP Agreement. An LLP may also be formed for to deposit money with the company. Shareholders / the purposes of carrying on professional services of The following are the forms of business organizations members of a private company shall not be more than which the partners must be natural persons of same available in Malaysia. fifty and are also restricted in their right to transfer their professional practice and have in force, professional Company shares in the company. A public company is employed indemnity insurance approved by the Registrar. Effective 31 January 2017, companies are governed by where it is intended to invite the public to subscribe for An LLP has perpetual succession and any change in the the new Companies Act 2016, which provides for three shares or debentures in the company or to deposit partners will not affect the existence, rights or liabilities of types of companies: money with the company. a LLP. 1. Company limited by shares; Limited Liability Partnership (LLP) 2. Company limited by guarantee; or LLP is an alternative business vehicle regulated under Partnership or sole proprietorship 3. Unlimited company. the Limited Liability Partnerships Act 2012, which All sole proprietorships and partnerships (excluding combines the characteristics of a company and a LLPs) are unincorporated and must be registered with In practical terms, almost all companies will be conventional partnership. the Registrar of Businesses also under the auspices of companies limited by shares, i.e., companies with limited the Companies Commission Malaysia (CCM). As liability, the maximum liability of a member being limited An LLP is a separate legal entity from its partners. The unincorporated entities, sole proprietorships and to the value of share capital. Companies may be formed liabilities of the partners of an LLP are limited while the partnerships have unlimited liability. In the case of as either private companies or public companies. LLP has unlimited capability in conducting business and partnerships, partners are both jointly and severally holding property. liable for the debts and obligations of the partnerships.

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The Federal Government of Malaysia

Malaysia adopts the constitutional monarchy form of government based on the Westminster system, which consists of three branches.

The state governments

Malaysia is a federation made up of 13 states and the federal territories of , Legislative Executive Judiciary and . 9 of these states are headed by hereditary rulers, the Sultans, who ● Creates laws by passing bills ● Although the Monarch is the Head of ● The Judiciary is empowered to serve as constitutional heads of state. The through the Parliament State, the executive power is vested interpret laws that are created by the remaining 4 states are headed by the Yang ● The parliament consists of two in the cabinet of ministers and is led Parliament by hearing criminal and Di-Pertua Negeri (governors) who are appointed houses, the House of by the Prime Minister civil cases in court for fixed terms of office to serve as constitutional Representatives () ● The cabinet formulates economic ● Headed by the Chief Justice of heads of state. and the Senate (Dewan Negara) policies, sets the national budget, Malaysia ● In most cases, bills are passed by and proposes and amends laws ● Court system is based on British Each state has its own written constitution and both houses and assented by the ● There are 25 ministries in total. common law principles an elected legislative assembly. Each state Yang di-Pertuan Agong to become Among the key ministries that are ● More information on the court government is led by a Menteri Besar (Chief law. relevant to foreign investors are the system is on the next page Minister), who is appointed from among the Ministry of Finance, Ministry of members of the legislative assembly. International Trade and Industry, and The division of powers between the various state Ministry of Economic Affairs governments and the federal government is defined by the Federal Constitution, which provides for a measure of autonomy for the 13 constituent states. PwC | Doing Business In Malaysia 2019 15 CONTENTS Business formation and the regulatory environment

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Court system Court system Substantially based on the British legal system and principles of common law. ------Federal Court 01 (The supreme court) Appellate courts Specialised statutory tribunals Court of Appeal Besides the ordinary courts of law, there are also 02 specialised statutory tribunals - e.g. Industrial Court, ------Labour Court, Tribunal for Consumer Claims. These quasi-judicial bodies serve to provide an alternative, Appellate court and High Court inexpensive and expedited means to settle disputes court of first instance* 03 between parties within their specialised jurisdictions. ------Sessions Court Syariah Courts Courts of 04 There is a parallel system of state Syariah Courts first instance** which has limited jurisdiction over matters of state Magistrates’ Court Islamic law. The Syariah Courts have jurisdiction only ------over matters involving . 05

* Cases with value of more than MYR1 million ** Cases with value of less than MYR 1 million

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Regulatory environment for companies

Malaysia’s doing business environment is governed by a number of regulations to maintain an efficient and competitive private sector as well as to protect the interest of the public and various stakeholders. Here are among the notable doing business regulatory frameworks:

Free and fair competition: Price control and anti-profiteering: Conduct in take-overs and mergers: Limits on foreign equity ownership: the Malaysian Competition government can penalise businesses the Malaysian Code on Take-Overs and regulations on specific ownership Commission investigates that make “unreasonably high profits” Mergers 20161 (issued by the Securities requirements apply depending on sector. complaints on anti-competition on any goods sold or services supplied. Commission of Malaysia) aims to ensure While generally, the government has been behaviours, carries out market that all shareholders are treated equally relaxing these requirements, there are a reviews and imposes penalties in a take-over and the acquisition of number of key areas where foreign ownership on offenders. voting shares (or control of companies) limits remain, such as in telecommunications, takes place in an efficient, competitive oil and gas and financial services. and informed market.

1 The Code can be viewed in its entirety on the Securities Commission of Malaysia’s website: www.sc.com.my/regulation/guidelines/take-overs-code

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Intellectual property (IP) rights Malaysian Legislation Protection for

Malaysia conforms with international standards and provides protection to local Patents Act 1983 Patents and foreign investors - by being signatory to several international treaties, and Patents Regulations 1986 through local legislation Trade Marks Act 1976 Trade Marks Trade Marks Regulations 1997 Agreement on Trade Paris Convention - Trade Descriptions Act 2011 Related Aspects of establishes a union for Industrial Designs Act 1996 Industrial designs Intellectual Property the protection of Industrial Designs Regulations 1999 Rights (TRIPS) - makes it industrial property mandatory for government Copyright Act 1987 Copyrights to give minimum levels of Various regulations protection to IP Geographical Indications Act 2000 (Upon registration) protection of goods following the Geographical Indications Regulations name of the place where the goods are produced, 2001 where a given quality, reputation or other International characteristic of the goods is essentially attributable treaties to their geographical origin. protecting IP Layout-Designs of Integrated Circuits Layout designs of integrated circuits rights Act 2000 Berne Convention - Patent Cooperation for the protection of Treaty (PCT) - provides a Registration of IP rights can be done through Intellectual Property Corporation literary and artistic unified procedure for filing of Malaysia (MyIPO) works patent applications Website: myipo.gov.my

PwC | Doing Business In Malaysia 2019 18 CONTENTS Business formation and the regulatory environment

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Controls on foreign exchange ● To pay in foreign currency to non-residents for any ● Up to a maximum of RM100 million equivalent in purpose (other than derivatives), including settlement aggregate from other non-residents. The aggregate Malaysia has a system of exchange control measures of goods and services. of RM100 million is shared with other resident aimed at monitoring the settlement of foreign currency entities within the resident’s group of entities with payments and receipts as well as encouraging the use Investments abroad by residents parent-subsidiary relationship. of the country’s financial resources for productive Investment in foreign currency assets are subject to the purposes in Malaysia. The Financial Services Act 2013 following: Borrowings in Ringgit by non-residents is the main legislation governing dealings and ● Resident entities without domestic Ringgit borrowing Non-residents are generally permitted to borrow any transactions in foreign currency whilst the Exchange are free to invest abroad. amount in Ringgit for the following purposes: Control Notices issued by the Central Bank of ● Resident entities with domestic Ringgit borrowing are ● Financing activities related to the production and Malaysia, i.e. Bank Negara Malaysia (BNM) embody permitted to invest abroad using foreign currency consumption of goods or services (other than the general permissions and directions of the funds sourced from conversion of Ringgit or using financial services). Controller of Foreign Exchange. funds in Trade Foreign Currency Account, up to ● Financing activities related to the construction or RM50 million per annum (based on aggregate purchase of residential or commercial properties Some of the controls put into place include: investments of entities within a group of entities with (other than purchase of land only). parent-subsidiary relationship). ● Settlement of goods and services procured from Remittances abroad by residents residents. Residents are permitted: Borrowings in foreign currency by residents ● Financing activities related to the construction or ● To pay in Ringgit to non-residents for settlement of Resident companies are generally allowed to borrow in purchase of residential or commercial properties goods and services. Payment must be made foreign currency as follows: (other than purchase of land only). through into the non-resident’s external account or ● Any amount from licensed onshore banks, entities ● Settlement of goods and services procured from the non-resident financial institution acting on the within its group other than a bank (excluding a residents. non-resident’s behalf. non-resident company set up solely to obtain foreign currency borrowings from non-resident financial institutions, direct shareholders and issuance of foreign currency debt securities to other residents); or PwC | Doing Business In Malaysia 2019 19 CONTENTS Business formation and the regulatory environment

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Types of accounts Trade FCA and proceeds retained under subparagraph 1. Foreign currency accounts (FCA) (a) is insufficient to meet the aggregate of the resident Residents are generally allowed to open FCAs with exporter’s six (6) months foreign currency obligations licensed onshore banks, or non-resident financial and Eligible Foreign Currency Payable to Resident institutions. A resident exporter is allowed to retain Payee that exist on the date of receipt of the export foreign currency proceeds from the export of goods proceeds. in its FCA held with licensed onshore bank, subject to the higher of the following limits: The balance of foreign currency proceeds shall be converted into Ringgit with a licensed onshore bank. (a) 25% of the export proceeds; or (b) subject to the proviso below, the resident There is no restriction on the maintenance of a foreign exporter’s aggregate of six (6) months currency account with licensed onshore banks in comprising of Malaysia by non-residents. (i) foreign currency obligations; and (ii) eligible foreign currency payable to 2. External accounts residents Non-residents are allowed to maintain an that exist on the date of receipt of the export external account (i.e. account in Ringgit) with any proceeds. financial institution in Malaysia. There is no restriction on the amount of Ringgit funds to be Proviso retained in the external accounts. Subparagraph (b) is only applicable if the aggregate amount of existing balance in the resident exporter’s

PwC | Doing Business In Malaysia 2019 20 CONTENTS Chapter 3

Labour relations and social security

PwC | Doing Business In Malaysia 2019 21 CONTENTS Labour relations and social security

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Employment regulations The Industrial Relations Act 1967 Industrial Court are final and legally binding. The Act prohibits strikes or lockouts after a dispute has been The Industrial Relations Act 1967 (“the Act”) and the Employment Act 1955 referred to the Industrial Court. Industrial Relations Regulations 1980, form the legal The provisions of the Employment Act 1955 framework within which the industrial relations system in The Employment (Part-Time Employees) Regulations (“Employment Act”) cover any person who works under a Malaysia operates. The Act aims to provide safeguards 2010 (EPTER) contract of service with an employer and who does not for legitimate rights, prerogatives and interest of earn more than RM2,000 a month on wages, or specific employees and employers and their trade unions, and to The EPTER provides protection for part-time employees categories of employees. Employees earning more than ensure that trade disputes are settled speedily and in a (PTE) who are hitherto, not protected under any labour RM2,000 but not exceeding RM5,000 may use the just manner, so as not to prejudice public and national law. Some of the protection and benefits provided under enforcement provisions of the Employment Act to interests. the EPTER include payments for hours worked beyond enforce monetary claims under their contracts. This is normal hours, paid holidays, paid annual leave, sick applicable to West Malaysia only. The and The Department of Industrial Relations Malaysia leave and weekly rest days for PTE who fall within the Labour Ordinances (“the ordinances”) cover continues to play an important role in maintaining a regulations. This regulation will require employers to certain types of employees who have entered into or harmonious environment in the labour market, by helping make contributions to the national Employees Provident work under a contract of service with their employers. to avert industrial action through active intervention, Fund (EPF) and Social Security Organization (SOCSO) The ordinances include foreign workers of these consultations as well as negotiations between parties. In for most part-time workers who are eligible for such specified occupations. Where the persons are not the event of a dispute, the Act provides for free contributions. covered by the Employment Act and the ordinances, negotiation between trade unions and employers on a common law relating to employment will apply to them. voluntary basis. Disputes may be reported to the Ministry of Human Resources for conciliation and referred to the Industrial Court for settlement. Awards made by the

PwC | Doing Business In Malaysia 2019 22 CONTENTS Labour relations and social security

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Others Unions

The following legislative enactments / code are relevant Omnibus or general workers’ unions are not permitted, in providing for the health, safety and general well-being but unions belonging to the same industry may apply to of employees: form a federation of trade unions or become affiliated ● Factories and Machinery Act 1967 - law relating to with the Malaysian Trade Unions Congress or the the safety of employees in the use of machinery; Malaysian Labour Organization. ● Occupational Safety and Health Act 1994 - imposes general duties upon employers, self-employed All trade unions are required by law to be registered with persons and employees to secure workplace health the Registrar of Trade Unions and must comply with the and safety; requirements of the Trade Unions Act 1959. This Act sets ● Code of Practice on the Prevention and Eradication out rules for the conduct of union business, such as the of Sexual Harassment in the Workplace - provides election of officers, strike ballots and the use of union guidelines for employers on the establishment of funds. in-house mechanism at the enterprise level to prevent and eradicate sexual harassment in the workplace.

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Working conditions, wages / salaries and statutory contributions

The Malaysian Investment Development Authority (MIDA) publishes on its website at www.mida.gov.my a guide on the Cost of Doing Business in Malaysia which provides information on regulatory requirements relating to the following: ● Paid leave (annual leave, maternity leave, sick leave) ● Paid holiday; ● Normal working hours (not more than 8 hours per day or 48 hours per week); ● Payment for overtime work; ● Salaries (maximum and minimum) for executives and non-executives in the manufacturing sector. ● Statutory contributions in respect of employees to the following funds:

PwC | Doing Business In Malaysia 2019 24 CONTENTS Labour relations and social security

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Employees’ Provident Fund (EPF) Social Security Organization (SOCSO) Human Resources Development Fund (HRDF) The Employees Provident Fund Act 1991 requires The Social Security Organization is an insurance HRDF provides financial assistance for training by employers and employees to make monthly scheme that covers Employment Injury and Invalidity contributing employers under certain designated training contributions to the EPF to secure lump sum payments Pension Scheme. All Malaysian citizens and permanent schemes. The employer that fall under the industries to employees at the age of 60 or earlier in the case of residents of Malaysia are covered by the Employment listed by HRDF are required to register with the HRDF incapacity or upon permanent departure from Malaysia. Injury Insurance Scheme (EIIS) and Invalidity Pension and contribute in respect of employees who are Contributions are mandatory for employees who are Schemes (IPS), which are administered by the Social Malaysian citizens. Currently there are 63 sub-sectors Malaysian citizens or permanent residents. Expatriates Security Organization (SOCSO). covered by HRDF under Manufacturing, Services, and foreign workers, who are not Malaysian citizens or Mining and Quarrying. permanent residents are not required to contribute to Effective from 1 January 2019, all employers who hire EPF although they may elect to do so. The standard foreign workers (excluding domestic servants) are HRDF has standardized the minimum number of local rates of contribution by an employer for a working required to register and contribute to Employment Injury employees to register with HRDF to 10 for all employers personnel are 12% or 13% depending on income Scheme (EIIS). A monthly contribution must be made for under the existing coverage of 63 sub-sectors. The threshold, and 11% by the employee. each eligible employee. contribution rate will be at 1%. HRDF will allow voluntary registration to all employers under the existing 63 sub-sectors that employs 5 to 9 local employee to Employment Insurance System contribute HRDF at 0.5% of their monthly wages. The Employment Insurance System, (EIS) is a social security network aimed at helping workers who lost their jobs with financial assistance and to seek new jobs. EIS is administered by Social Security Organisation (SOCSO). It is mandatory for all private sector employers to make monthly contribution for each of their employees.

PwC | Doing Business In Malaysia 2019 25 CONTENTS Labour relations and social security

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Foreign personnel ● – posts in banking, finance Restrictions on employment of foreign personnel and insurance sectors. Approval for expatriate posts ● Securities Commission – employment in securities The government permits a company investing in and share market. Malaysia to bring in technical expertise or other Approvals for expatriate posts are given by different ● Department of Immigration Malaysia (the expatriate executive personnel necessary for the functioning of the authorized bodies or agencies depending on the type of committee) – employment in sectors other than the company. However, it is the government’s policy that core business of the company. The Malaysian above. jobs should be filled by eventually. The Investment Development Authority (MIDA) approves Malaysian government is desirous that Malaysians are expatriate posts in the following fields: eventually trained and employed at all levels of ● Manufacturing The following minimum paid-up share capital employment. ● Manufacturing related services requirements must be fulfilled before an application for ● Hotel and tourism industry an expatriate position can be processed by the ● Research and Development expatriate committee: Other approving agencies for expatriate posts are: RM250,000 RM350,000 ● Multimedia Development Corporation (MDec) – for expatriate posts and skilled workers in IT based 100% Malaysian owned Malaysian and foreign companies with MSC status. company owned company ● Public Service Department (PSD) – doctors and nurses in government hospitals and clinics; lecturers and tutors in government institutions of higher RM500,000 RM1,000,000 learning; contract posts in public services and jobs offered by the Public Service Commission or related 100% foreign owned Company undertaking government agencies. company distributive trade and foreign owned restaurant

PwC | Doing Business In Malaysia 2019 26 CONTENTS Chapter 4

Audit requirements and accounting practices

PwC | Doing Business In Malaysia 2019 27 CONTENTS Audit requirements and accounting practices

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Statutory requirements for Malaysian-incorporated Accounting and other records are to be retained for companies seven years after the completion of the transactions or operations to which they relate. Accounting and other records Every company incorporated under the Companies Act System of Internal Control 2016 is required to keep accounting and other records The directors of a public company or a subsidiary of a so as to sufficiently explain the transactions and financial public company shall have in place a system of internal position of the company and enable preparation of control that will provide reasonable assurance that the financial statements showing true and fair view to be assets of the company are safeguarded against loss conveniently and properly audited. All transactions must from unauthorised use or disposition, to give a proper be recorded within 60 days of completion. These account of assets and all transactions are properly accounting and other records are the responsibility of the authorised and that the transactions are recorded as company’s directors. necessary to enable the preparation of true and fair view of the financial statements of the company. These accounting and other records must be kept at the company’s registered office (which must be in Malaysia) Financial statements or such other place as the directors think fit. Accounting and other records relating to operations outside Malaysia The directors must present a set of financial statements may be kept at a place outside Malaysia, provided such in accordance with the approved accounting standards accounting and other records are sent to and kept at a issued or adopted by the Malaysian Accounting place in Malaysia. The accounting and other records Standards Board (MASB) and the requirements of the must be made available for inspection by the directors at Companies Act 2016. all times.

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The financial statements or where applicable, Duty of Circulation and Lodgement of Financial All amounts shown in the financial statements and consolidated financial statements for a financial year Statements and Directors’ reports directors’ reports lodged with the Registrar shall be shall give a true and fair view of the financial position as presented in Malaysian currency and if such financial The directors of every company must prepare financial at the end of the financial year and the financial statements and reports are in a language other than the statements within 18 months from the date of performance for the financial year of the company or national language or English language, there must be a incorporation and, subsequently within 6 months of the where applicable, of the company and all its subsidiaries translation in the national language or English language company’s financial year end. Every company must which are dealt with in the consolidated financial certified to be a correct translation by the Registrar circulate a copy of its financial statements and directors’ statements as a whole. annexed to such financial statements and reports. report for each financial year to shareholders, auditors, debenture holders and every person who is entitled to The financial statements shall contain, in the notes to Statement by directors on the financial statements receive notice of general meetings. the financial statements, the information as the Registrar A statement signed by at least two directors and in the of Companies (“the Registrar”) may determine and may For a private company, the financial statements and case of a sole director, by that director in accordance include but not limited to the directors’ remuneration, the directors’ report must be circulated within 6 months of with the resolution of the Board of director(s) stating directors’ retirement benefits, compensation to directors the company’s financial year end and must be lodged whether in their or his opinion the financial statements or for loss of office, loans, quasi-loans and other dealings in with the Registrar of the Companies Commission of where applicable the consolidated financial statements favour of directors, auditors’ remuneration for their Malaysia (“the Registrar”) within 30 days from the date is or are drawn up, in accordance with the applicable service as auditors given by or from the company or the financial statements and the directors’ reports are accounting standards, to give a true and fair view of the from any subsidiary of the company. circulated to its members. For a public company, the financial position and financial performance of the financial statements and directors’ report must be company and of the group. Directors’ report circulated at least 21 days before the annual general A directors’ report must be attached to every financial meeting and must be lodged with the Registrar within 30 statements. The matters required to be covered in the days from its annual general meeting. directors’ report are set out in Section 253 and the Fifth Schedule of the Companies Act 2016.

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Statutory declaration by the director or person Additional disclosure requirements for public listed responsible for financial management companies

In addition, a statutory declaration by a director or where Public listed companies are also required to comply with the director is not primarily responsible for the financial the disclosures required by the Listing Requirements of management of the company, by the person responsible Securities Berhad in their annual for the financial management of the company, setting reports. The timeline for filing annual reports with the forth that the director’s or person’s opinion as to the stock exchange is within 4 months from close of financial correctness of the financial statements and attested by year. the Commissioner for Oaths, must also be attached to the financial statements. Public listed companies are also required to provide an interim financial report on a quarterly basis to their Auditors’ report shareholders within 2 months after the end of each quarter. Guidelines for disseminating material The financial statements should be duly audited by an information on public listed companies are set out in the approved auditor except for those private companies Listing Requirements of Bursa Malaysia Securities qualified and elected for audit exemption. Berhad.

The auditors’ report shall state whether the financial statements have been properly drawn up in accordance with the applicable approved accounting standards and the Companies Act 2016 so as to give a true and fair view of the financial position, financial performance and cash flows of the group and of the company.

PwC | Doing Business In Malaysia 2019 30 CONTENTS Audit requirements and accounting practices

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Statutory requirements for foreign companies Filing requirements accounting standards and which gives a true and fair carrying on business within Malaysia view of the foreign company’s operations in Malaysia. A foreign company with operations in Malaysia is Accounting and other records required to lodge with the Registrar within two months of Financial statements its annual general meeting a copy of its financial A foreign company desiring to establish a place of statements and other documents required to be attached The requirement of financial statements is similar to business or to carry on business within Malaysia is to its financial statements by the law applicable to the those companies incorporated in Malaysia. In addition, required by the Companies Act 2016 to register itself company in its place of incorporation or origin. Where foreign companies that are listed in Malaysia can apply with the Registrar. the foreign company is not required to hold an annual the acceptable internationally recognised accounting general meeting and prepare a financial statements by standards or MASB approved accounting standards. The Companies Act 2016 requires the accounting and the law of the place of its incorporation, the company is other records of a foreign company’s operations in required to prepare a financial statements containing Foreign companies that are listed in Malaysia are Malaysia to be kept in Malaysia that will sufficiently such particulars as if it were a public company required to comply with the disclosure requirements explain the transactions and financial position of the incorporated in Malaysia. stated in the Listing Requirements of Bursa Malaysia foreign company arising out of its operations in Malaysia Securities Berhad in their annual reports, timeline for and shall cause these records to be kept in such a In addition, a foreign company is required to lodge with filing annual reports and quarterly interim financial manner as to enable them to be conveniently and the Registrar a duly audited financial statements and reports similar to a Malaysian-incorporated company properly audited. All transactions must be recorded other documents required to be attached with the listed in Malaysia. within 60 days of completion. financial statements and a duly audited statement showing its assets used in Malaysia and its liabilities arising out of its operations in Malaysia as at the date to which its financial statements was made up, so far as is practicable, complies with the applicable approved

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Financial Reporting Framework in Malaysia MASB Approved Accounting Standards for Entities Notwithstanding the above, a private company that is other than Private Entities itself, or is a subsidiary or associate of, or jointly The MASB has been established as the sole authority for controlled by, an entity that is a management company issuing accounting standards and other financial Entities other than Private Entities shall apply the as defined in section 2 of the Interest Schemes Act 2016 reporting pronouncements in Malaysia. All financial Malaysian Financial Reporting Standards (MFRS) is not a private entity. statements prepared pursuant to any law administered Framework which is identical to the International by the Securities Commission Malaysia (SC), Bank Financial Reporting Standards (IFRS). An entity may only be treated as a private entity in Negara Malaysia (BNM) and the Registrar have to relation to such annual periods or interim periods comply with approved accounting standards issued by MASB Approved Accounting Standards for Private throughout which it is a private entity. the MASB. Entities Private entities shall comply with either: A private entity is a private company as defined in 1. Malaysian Private Entities Reporting Standards section 2 of the Companies Act 2016 that: (MPERS) in their entirety. The MPERS is based on a) is not itself required to prepare or lodge any the International Financial Reporting Standard for financial statements under any law administered by Small and Medium-sized Entities (IFRS for SMEs) the SC or BNM; and issued by the International Accounting Standards b) is not a subsidiary or associate of, or jointly Board (IASB) except for property development controlled by an entity which is required to prepare activities; or or lodge any financial statements under any law 2. MFRS in their entirety. administered by the SC or BNM.

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Auditing requirements Audit requirements for public companies Audit requirements for private companies

Auditors The directors of a public company must appoint an The directors of a private company (other than those auditor at any time before the first annual general companies that meet the audit exemption criteria and To qualify for appointment as an auditor, a person must meeting of the company or to fill a casual vacancy the have elected for the audit exemption) must appoint an be approved as an “approved auditor” by the Minister of office of auditor. If the directors fail to appoint an auditor, auditor at least 30 days before the end of the period for Finance and complied with the provisions as set out in the shareholders must appoint an auditor by ordinary the submission of the first financial statements to the the Companies Act 2016. No auditor will be so approved resolution. After the first annual general meeting, the Registrar (for newly incorporated companies) or to fill a if he is not a member of the Malaysian Institute of shareholders have the right to appoint an auditor by casual vacancy the office of auditor. If the directors fail to Accountants (MIA). ordinary resolution at the annual general meeting or appoint an auditor, the shareholders must appoint an when the company fails to appoint an auditor at an auditor by ordinary resolution. Auditor must be appointed annual general meeting. If a public company fails to 30 days before the expiry of the period allowed for appoint an auditor, the Registrar has the power to lodgement of the previous year’s financial statements appoint one or more auditors upon application in writing with the Registrar. If a private company fails to appoint from any shareholder of the company. an auditor, the Registrar has the power to appoint one or more auditors upon application in writing from any shareholder of the company.

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A private company that meets the MASB’s definition of a iii) has not more than 5 employees at the end of private entity and meets the criteria of one of the its current financial year and in each of its following 3 categories may elect for audit exemption. immediate past 2 financial year ends. The categories are set out below: a) Dormant company, i.e. a company that has been Any company that elects for audit exemption must dormant from the time of its incorporation or it is circulate and lodge its unaudited financial statements dormant throughout the current financial year and with Registrar accompanied with required certificate in in the immediate preceding financial year.; accordance with the requirements of Companies Act b) Zero-Revenue company, i.e. a company that does 2016. The unaudited financial statements prepared shall not have any revenue during the current financial comply with applicable approved accounting standards, year, does not have any revenue in the immediate and shall be lodged together with the directors’ report, past two financial years and its total assets in the statement by directors and statutory declaration. current financial year’s statement of financial position does not exceed RM300,000 as well as in Approved standards on auditing the statement of financial position of the immediate past 2 financial years.; An audit of financial statements of a company c) Threshold-Qualified company, i.e. a company that: incorporated under the Companies Act 2016 in Malaysia Audit exemption for private companies i) has revenue not exceeding RM100,000 during is conducted in accordance with approved standards on the current financial year and in the immediate auditing in Malaysia, which are word-for-word consistent Pursuant to the Companies Act 2016, the Registrar have past 2 financial years; with the International Standards on Auditing (ISA) issued the power to exempt any private company from the ii) its total assets in the current financial year’s by the International Auditing and Assurance Standards requirement to appoint an auditor according to the statement of financial position does not exceed Board (IAASB). conditions as determined by the Registrar. RM300,000 and in the immediate past 2 financial years; and

PwC | Doing Business In Malaysia 2019 34 CONTENTS Chapter 5

Business Taxation

PwC | Doing Business In Malaysia 2019 35 CONTENTS Business Taxation

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Principal taxes Taxes on capital gains Classes of taxpayers The principal taxes are shown below: There is no capital gains tax except for real property The principal classes of domestic and foreign taxpayers gains tax (RPGT) which is a tax on gains arising from covered by the income tax legislation are companies, Taxes on income the disposal of real property or shares in real property individuals, trade associations, co-operative societies, Income tax companies (RPC). trusts, and estates. Generally, partnerships are not Petroleum income tax taxable entities. They are treated as conduits in which Income tax the partners and not the partnership, are taxed on the Taxes on transactions partnership income. However, a Limited Liability Customs and excise duties Scope of tax Partnership, is given the same tax treatment as Sales tax Income tax is imposed on income accruing in or derived companies. Service tax from Malaysia with the general exception of resident Entertainment duty companies carrying on a business of air / sea transport, Taxable income and gains Stamp duty banking or insurance, which are subject to income tax The sources of income subject to tax include those listed Windfall profit levy on a world income scope. (Specific exemptions are below: Contract levy available for Malaysian banks, insurance companies ● Gains or profits from any trade, business, profession, and takaful companies subject to specified conditions). or vocation. ● Gains or profits from an employment, including allowances and benefits-in-kind. ● Dividends, interest and discounts. ● Rents, royalties and premiums. ● Pensions, annuities and other periodic payments. ● Any gains or profits not falling within the gains listed above.

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Corporate tax system Taxation of shareholders With respect to income such as royalties, interest or Malaysia is on a single-tier system. Under this system, service fees that is not attributable to a business carried Residence of companies tax on a company’s profits is a final tax. Dividends are on in Malaysia, the tax liability of the non-resident will be A company is tax resident in Malaysia for the basis year exempt in the hands of shareholders, and companies settled by way of withholding tax deducted by the paying for a year of assessment if at any time during the basis are not required to deduct tax at source from dividends entity. For example, a withholding tax rate of 10% is year, the management and control of its affairs are distributed to shareholders. imposed on amounts received by a non-resident person exercised in Malaysia. Generally, a company would be for provision of any advice, assistance or services regarded as resident in Malaysia if at any time during the Foreign corporations – liability to tax rendered in Malaysia (not limited to services of technical basis period for a year of assessment, at least one Foreign corporations (similar to Malaysian corporations) or management in nature), or the provision of services meeting of the Board of Directors is held in Malaysia are taxed on income accruing in or derived from relating to the installation or operation of any apparatus concerning the management and control of the Malaysia. A broad basis for determining whether or not or plant. For more details, please refer to the section on company. business profits are derived from Malaysia is to withholding tax. determine whether the foreign corporation is “trading Year of assessment (YA) and basis period within” Malaysia (taxable) or “trading with” Malaysia For non-resident contractors that perform services in The YA is the year coinciding with the calendar year. For (non-taxable). Malaysia for an extended duration of time, a withholding example, the YA 2019 is the year ending 31 December tax of 13% may apply. 2019. The basis period for a business source is normally If a double taxation agreement with the home country of the financial year (FY) ending in that particular YA. For the foreign corporation is in force, the taxation of example the basis period for YA 2019 for a business business profits derived by the foreign corporation is which closes its accounts on 30 June 2019, is the FY limited to the profits that are attributable to its permanent ending 30 June 2019. All non-business sources of establishment situated in Malaysia. income of a company are also assessed on the basis of the FY.

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Rates of tax one month after paying or crediting such payments. The Rate (%) Resident companies are taxed at the rate of 24%. rates of WHT are as shown above, except where the However, a resident company with paid-up capital of DTA between Malaysia and the country in which the Royalty 10 RM2.5 million or less is taxed at the following rates recipient is resident, provides for a lower rate, in which (provided that specified conditions are met with): case the DTA rate would be the WHT rate. Rental of moveable property 10 There is no WHT on dividends paid by Malaysian Chargeable income RM Rate (%) Technical and non-technical or managerial 10 (YA 2019) service fee1 companies.

On the first 500,000 17 Interest 15

In excess of 500,000 24 Dividends Exempt

Income other than the above 10 Non-resident companies are taxed at the rate of 24% on their business income. 1 Only services rendered in Malaysia are liable to tax.

Certain income received by a non-resident company that Withholding tax (WHT) is not attributable to a business carried on by that Payments of the above types of income to non-residents non-resident in Malaysia is subject to tax at the following (except for dividends) are subject to WHT which is due rates (unless the relevant double taxation agreement and payable to the Inland Revenue Board (IRB) within (DTA) provides for some other rate):

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Gross income and profits from business Interest expenses Gross income subject to income tax is generally based It is proposed that the Earning Stripping Rules (ESR) is on the audited financial statements of the company. to be implemented in replacement of the Thin Business profits are computed on the basis of the Capitalisation Rules with effect from 1 January 2019. audited accounts or non-audited accounts as the case Under the ESR, the interest deduction will be limited to a may be, with adjustments made for non-taxable and ratio as determined by the tax authorities, possibly non-tax deductible items. ranging from 10% to 30% of the company’s profit before interest, taxes, depreciation and amortisation. Further Non-taxable income guidance on the ESR will be issued soon. Capital receipts are non-taxable. Certain types of income may also be specifically exempted by statute. Capital allowances “Single-tier” dividends as well as dividends paid out of The depreciation charged on industrial buildings, plant tax exempt income received by a corporation are exempt and machinery, furniture, office equipment and motor from tax in the hands of shareholders. vehicles, in the books in arriving at the commercial profit is not deductible for tax purposes. The law, however, Deductible expenses provides for corresponding deductions for certain fixed Deductions are allowed for all outgoings and expenses assets used for the purposes of the business in the form incurred wholly and exclusively in producing gross of “capital allowances” (CA). Initial allowance is granted income, unless specifically disallowed. Non-allowable in the year the expenditure is incurred and the asset is in expenses include domestic or private expenses, income use for the purpose of the business. Annual allowance at tax or similar taxes, pre-incorporation, preliminary or the prescribed rates calculated on cost is given for every start up expenses, capital withdrawn, or capital year during which the asset is in use at the end of the expenditure on improvements. basis year for the purposes of the business.

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The broad categories of qualifying expenditure together with the prescribed rates are set out below:

Accelerated CA is available for certain types of Qualifying asset Initial allowance Annual allowance industrial buildings, such as buildings used as a school (%) (%) or an educational institution and plant and machinery, Industrial building, whether constructed or purchased 10 3 such as computers, information technology equipment, environmental protection equipment and waste Heavy machinery 20 20 recycling equipment.

General plant and machinery 20 14

Furniture and fixtures 20 10

Office equipment 20 10

Motor vehicles* 20 20

Small value assets of less than RM1,300 each (subject to a maximum - 100 total cost of RM13,000)

*There is a limit on the qualifying expenditure on motor vehicles not licensed for commercial transportation of goods or passengers (restricted to RM50,000). However, for new vehicles, where the “on-the-road price” of the vehicle does not exceed RM150,000, the maximum qualifying expenditure is restricted to RM100,000.

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Plantations and forests Deduction of capital allowances (CA) Expenditure on new planting (as distinct from CA on assets used in one business cannot be deducted expenditure on replanting, which is deductible) and on against income from another business, or against the construction of roads in a plantation, qualifies for an income from other non-business sources. When there is agriculture allowance of 50% of the cost for two years. insufficient adjusted income to absorb the full amount of Expenditure on the construction of roads in a forest, or allowances available, the unutilised amount is carried of buildings that are likely to be of little or no value when forward for deduction against future business income the plantation ceases to be worked, or when timber from the same source. ceases to be extracted, qualifies for an agriculture allowance of 10% of the cost for ten years. The cost of Companies are not allowed to deduct unutilised CA construction of buildings used for staff welfare or as brought forward from a prior year against income of a living accommodation, qualifies for an agriculture particular YA if the shareholders of the company at the allowance of 20% of the cost for five years. beginning of the basis period for that YA are not substantially the same as the shareholders of the company at the end of the basis period for the (prior) YA in which the loss was initially ascertained. However, the Ministry of Finance has issued guidelines which state that the above rule restricting carry-forward CA based on the shareholder continuity test would only apply to dormant companies.

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Losses Group relief Capital gains and other taxes Business losses can be set off against income from all Group relief is available to all locally incorporated, Other than RPGT, no tax is imposed on capital gains. sources in the current year. Companies are not allowed resident companies that fulfill certain conditions. For more details on RPGT and other taxes, please refer to deduct a loss brought forward from a prior year Companies that qualify are allowed to surrender a to Chapter 7. against income of a particular YA if the shareholders of maximum of 70% of its adjusted loss for a YA to one or the company at the beginning of the basis period for more related companies. With effect from YA 2019, the that YA are not substantially the same as the period in which a company may surrender its adjusted shareholders. However, the Ministry of Finance has loss is limited to the first 3 consecutive YAs after having issued guidelines which state that the above rule completed its first 12-month basis period from restricting carry-forward losses based on the commencement of its operations. Companies opting for shareholder continuity test would only apply to dormant group relief must make an irrevocable election to companies. surrender or claim the tax loss in the return to be filed with the IRB for that YA. With effect from YA 2019, unutilised business losses in a YA can only be carried forward for a maximum period Companies currently enjoying certain incentives such as of 7 consecutive YAs to be utilised against income from pioneer status, investment tax allowance, reinvestment any business source. Unutilised business losses allowance etc. are not eligible for group relief. With brought forward from YA 2018 can be utilised for effect from YA 2019, group relief is also not available for another 7 YAs and the unutilised balance will be companies where its pioneer status or investment tax disregarded in YA 2026. allowance incentive has expired, and there are still unutilised pioneer losses or unutilised investment tax allowance available.

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Tax administration Tax collection Public rulings and advance rulings Companies are required to furnish estimates of their tax To facilitate compliance with the SAS, the Director Submission of returns and assessments payable for a YA not later than 30 days before the General of Inland Revenue (DGIR) is empowered by Under the Self Assessment System (SAS), companies beginning of the basis period. However, a newly law to issue public rulings. Public rulings set out the are required to submit a return of income within 7 established company with paid-up capital of RM 2.5 interpretation of the DGIR in respect of a particular tax months after the closing of accounts. Particulars million and less that meets certain specified conditions, law, and the policy and procedures that are to be required to be specified in the return include the is exempted from this requirement for 2 years, beginning applied. Public rulings are binding on the DGIR but a amount of chargeable income and tax payable by the from the YA in which the company commences taxpayer who has applied the treatment as set out in a company. Upon submission of the return, an operation. A revised estimate can be submitted in the particular public ruling may still appeal against an assessment is deemed to have been made on the 6th and / or 9th month of the basis period for a YA. assessment which is based on the public ruling. All company. The return is deemed to be a notice of public rulings may be downloaded from the IRB’s assessment, which is deemed to be served on the Companies are then required to pay tax by monthly website at www.hasil.gov.my. company on the date that it is submitted. installments (based on the estimates submitted) commencing from the second month of the company’s A taxpayer may request for an advance ruling from the basis period (financial year). DGIR, who may make an advance ruling on how any provision of the law applies to an arrangement Tax payable by a company under an assessment upon described in the application. An advance ruling is only submission of a return is due and payable by the “due applicable to the person making the application and is date”. The “due date” is defined as the last day on expiry not subject to review when issued. However, the of 7 months from the date on which the accounts are taxpayer retains his right of appeal against any closed. assessment issued in accordance with the tax treatment set out in the ruling. A charge will be imposed for the issuance of an advance ruling.

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Tax audit process Transfer pricing Advance pricing arrangements (APA) The general tax audit framework outlines the rights and Companies are allowed to apply for APAs from the responsibilities of audit officers, taxpayers, and tax Transfer pricing (TP) legislation DGIR. The objective of establishing APAs is to provide agents in respect of a tax audit. A tax audit may cover The basis for determining proper compensation is, an avenue for taxpayers to obtain certainty upfront that a period of one to three YAs determined in accordance almost universally, the arm’s length principle which has their related party transactions meet the arm’s length with the audit focus. The YAs to be covered in a tax also been accepted by the Inland Revenue Board (IRB). standard. The IRB has issued the APA Rules 2012 and audit may, however, be extended depending on the APA Guidelines 2012 to give guidance on the matter. issues identified during an audit. The arm’s length principle was incorporated into Section 140A of the Malaysian Income Tax Act 1967. It allows Statute of limitation for TP adjustments Statute of limitation the DGIR to adjust any transfer prices between related The statute of limitation is seven (7) years from the Additional assessments can be made within five (5) parties in Malaysia which, in the view of the DGIR, do expiration of a YA for raising an assessment or additional years after the expiration of the relevant YA. This time not meet the arm’s length standard. assessment for that YA in respect of TP adjustments for limit is not applicable where fraud, wilful default, or a transaction entered into between associated persons negligence has been committed. What constitutes “arm’s length” is not defined in the not at arm's length. Income Tax Act 1967. Consequently, the IRB has issued the TP Rules 2012 and the revised TP Guidelines 2012 Country-by-Country Reporting to give guidance on the arm’s length standard that is The Malaysian Country-by-Country Rules require a acceptable to the IRB. The TP Rules and Guidelines Malaysian multinational corporation (MNC) group with seek to provide guidance on the application of the law total consolidated group revenue of RM3 billion and on controlled transactions, the acceptable above in the FY preceding the reporting FY (i.e. FY methodologies as provided in the rules and commencing on or after 1 January 2017) to prepare and administrative requirements including the types of submit the Country-by-Country Report to the IRB no records and documentation expected from taxpayers later than 12 months after the close of each FY. involved in TP arrangements.

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Malaysian entities of foreign MNC groups will generally shares as the transaction may be regarded as an There may also be stamp duty implications when assets not be required to prepare and file Country-by-Country acquisition and disposal of real property company are transferred. Relief from stamp duty may be available Reports as the obligation to file will be with the ultimate shares. where assets are transferred under a scheme of holding company in the jurisdiction it is tax resident in. reconstruction or amalgamation of companies and However a notification to the IRB may be required. If the two corporations being merged are under common certain prescribed conditions are satisfied. Relief is also control, transfer of any asset between them is regarded available under certain circumstances on the transfer of Business reorganisations as a “controlled transfer” wherein the disposer / acquirer assets between associated companies where either is deemed to have disposed of / acquired the assets at company owns 90% or more of the other company or Incorporation the tax written down value. (“Control” means where a third company owns 90% or more of both. (See The transfer of a business by a sole proprietor or a management control or the holding of 50% or more of Chapter 7). partnership to a corporation will result in the profits of the the shares by the disposer / acquirer or other controlling business being subject to tax at the corporate tax rate of corporation). 24% as from the date of transfer, as opposed to being taxed at graduated rates for personal tax. Unutilised In other cases of transfer, the transfer values of the fixed business losses and CA available to the Malaysian assets will constitute qualifying expenditure for the branch of a foreign company are non-transferable upon purpose of computing CA of the transferee corporation, local incorporation. and for the transferor corporation, the disposal value of assets disposed of, on which computation of balancing Merger or amalgamation charge or allowances will be based. The merging of two corporations by an exchange of shares normally has no tax consequences unless one of Group relief (outlined earlier) is available to all locally them is a real property company. In such cases, there incorporated tax resident companies that fulfil certain may be RPGT implications arising from an exchange of conditions.

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Tax incentives Examples of tax incentives available are as follows: Currently, eligible projects range from projects of national and strategic importance, high technology, In cognisance of the importance of the role of private Pioneer status (PS) and investment tax allowance research & development, healthcare, education, to those sector investment in ensuring sustainable growth in the (ITA) undertaking green technology activities such as energy medium and long term, the government has instituted PS incentive is an exemption from income tax on 70% of conservation and generation of energy using renewable measures to enhance investment activity in Malaysia. statutory income (adjusted income after deducting capital resources. One of the measures is through tax incentives. Tax allowances) for a period of five years. ITA is an allowance incentives are generally applicable to investors who of 60% of qualifying capital expenditure (QCE) incurred Any unutilised PS losses can be carried forward for a establish tax resident companies in Malaysia. The policy on a building or plant and machinery for a period of five maximum period of 7 consecutive YAs after the end of is to encourage foreign companies wishing to engage in years. ITA is an alternative incentive to PS. the pioneer period (with effect from YA 2019). The same continuing operations in Malaysia to incorporate local treatment applies to unutilised PS losses accumulated subsidiaries. Tax incentives to promote investments in Companies in the manufacturing, agricultural, hotel and as at YA 2018 where the incentive period has already Malaysia are generally in the form of tax exemptions on tourism sectors or any other industrial or commercial expired. Any unutilised amount after the end of the 7th profit, capital based incentives in the form of allowances sector that participates in a promoted activity of YA will be disregarded, or deductions based on the quantum of capital producing a promoted product may be eligible for the PS expenditure incurred. or ITA incentive where qualifying conditions are met. Islamic financial services sector There are also an array of incentives available in Malaysia has made legislative changes where required, to There are also enhanced PS and ITA incentives available furtherance of the government’s objective of developing meet the Forum on Harmful Tax Practice’s requirements. for companies undertaking projects in promoted products Malaysia into a leading international Islamic Financial or activities where the government intends to further Centre. These range from tax deduction given for expedite growth. Enhanced PS usually takes the form of issuance costs of various Islamic securities to tax a full tax exemption whilst ITA is given on 100% of QCE. exemptions granted for fees earned from management of funds in accordance to syariah principles.

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Principal hub “Pre-packaged” incentives A principal hub is a locally incorporated company which As part of the Government’s efforts to attract high quality uses Malaysia as a base for conducting its regional and investments, specially “pre-packaged” incentives are global businesses and operations through management, available to companies resident in Malaysia carrying on an control and support of key functions. These include “approved business”. An “approved business” is defined to management of risks, decision making and strategic mean any business approved by the Minister of Finance business activities such as trading, finance, (“the Minister”) under the special incentive scheme. Under management and human resource. this scheme, a company is entitled to claim either: ● Tax exemption of 70% (or any other rate as prescribed Income tax at tiered rates (0%, 5%, or 10%) is given for by the Minister) of the company’s statutory income; or a period of up to ten years, subject to conditions being ● Tax exemption of 70% (or any other rate as prescribed met (for applications from 1 May 2015 to 31 December by the Minister) of statutory income granted based on 2020). Other available non-fiscal incentives available a percentage (as determined by the Minister) of QCE include: incurred. ● No equity/ownership conditions. ● Foreign exchange administration flexibilities and Multimedia Super Corridor expatriate positions. Incentives are also given to MSC (Multimedia Super ● Customs duty exemption for raw materials, Corridor) status companies. MSC status is awarded to both components, or finished products brought into free local and foreign companies that develop or use zones, licensed and bonded warehouses for multimedia technologies to produce or enhance their production or repackaging cargo consolidation, and products and services and for process development. MSC integration before distribution to its final customers status companies are situated in special zoned areas in for goods-based companies. Malaysia.

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Development Regions Basic to the strategy for promotion of Reinvestment Allowance (RA) Economic Region Location The following development regions were launched as part of the investments in these development regions RA is available to manufacturing companies Malaysian government’s plan for national economic advancement is the provision of all necessary that reinvest their capital to embark on a project 1. Southern through regional development and growth acceleration in various infrastructure (financial and non-financial) for either expansion of existing production (www.iskandarmalaysia.com.my) strategic locations by promotion of domestic and foreign investments: for the creation of a business-friendly capacity, modernisation or automation of the environment, including tax and other production facilities, or diversification into 2. Northern Corridor Economic Region States of , (http://www.koridorutara.com.my/v3/) , and financial incentives. Apart from existing related products. The rate of RA is 60% of QCE incentives which are available for promoted (i.e. factory, plant and machinery) and is northern Northern Corridor Economic Region Perlis (http://www.koridorutara.com.my/v3/) activities and products provided under the granted in addition to CA. The RA is used to 3. East Coast Economic Region States of , Kedah Promotion of Investments Act 1986 (PS, reduce up to 70% of statutory income of the Kelantan (www.ecerdc.com.my) , Penang Western, central and ITA, etc.) and the Income Tax Act 1967, manufacturing company from its business and district of Terengganu eastern regions of Sabah Northern Perak special incentives which are customised for source in respect of the qualifying project. Mersing in Johor East Coast Economic Region the purpose of each development region 4. Sabah Development Corridor Western, central and Pahang (www.ecerdc.com.my) have been (or will be) developed. To date, The incentive period for RA is 15 years from the (www.sedia.com.my/) eastern regions of Sabah Development Corridor special legislation has been enacted for first year of claim by a company. In respect of (www.sedia.com.my/) Sabah Iskandar Malaysia, the East Coast unutilised RA available at the end of the RA Mersing Central Sarawak Economic Region and the Sabah period, the 7 consecutive YAs carry-forward Southern Johor Development Corridor. restriction apply, similar to the PS incentive. Economic Region Location

5. Sarawak Corridor of Central Sarawak Iskandar Malaysia Renewable Energy (www.iskandarmalaysia.com.my) (www.recoda.com.my) Renewable Energy (www.recoda.com.my)

PwC | Doing Business In Malaysia 2019 48 CONTENTS Chapter 6

Personal Taxation

PwC | Doing Business In Malaysia 2019 49 CONTENTS Personal Taxation

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Scope of taxable income Residence status of individuals

Income tax is imposed on income accruing in or derived The tax residence status of an individual is determined from Malaysia by any person (See Chapter 5). Gains or based on the number of days he is present in Malaysia. profits from an employment, profession or vocation are The individual would be regarded as a tax resident, if he taxable if derived from Malaysia. Employment income is meets any of the following conditions, i.e. if he is: regarded as derived from Malaysia if the employment is ● in Malaysia for a least 182 days in a calendar year; exercised in Malaysia and is subject to Malaysian tax, ● in Malaysia for a period of less than 182 days during even if the income is paid outside of Malaysia. Capital the year (shorter period) but that period is linked to gains are not taxable except for those derived from a period of physical presence of 182 or more disposal of real property or shares in a real property “consecutive” days in the following or preceding company (See Chapter 7). year (longer period). In ascertaining “consecutive” days, under certain situations, an individual’s Basis of assessment temporary absence from Malaysia may be disregarded when determining tax residence status. Income is assessed to tax on a current year basis. All ● in Malaysia for 90 days or more during the year and, income of individuals are assessed on a calendar year in any 3 of the 4 immediately preceding years, he basis. The year of assessment (YA) is the year was in Malaysia for at least 90 days or was resident coinciding with the calendar year, for example, the YA in Malaysia; 2019 is the year ended 31 December 2019. ● resident for the year immediately following that year and for each of the 3 immediately preceding years.

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Rates of tax

Resident individuals Non-resident individuals

Chargeable Tax payable Tax rate (%) on Types of income Tax rate (%) Income (RM) (RM) excess (YA 2019) Public entertainer’s professional income 15 5,000 0 1 Interest 15 20,000 150 3 Royalty 10 35,000 600 8 Special classes of income: 10 50,000 1,800 14 ● rental of movable property ● advice, assistance or services rendered in Malaysia 70,000 4,600 21 ● payment for services rendered in connection with use of property or installation or operation of any plant, machinery or other apparatus purchased from a non-resident person 100,000 10,900 24 Dividends (single tier) Exempt 250,000 46,900 24.5 Business and employment income 28 400,000 83,650 25 Employment income of a knowledge worker who is a qualified person in Iskandar Malaysia (for employment 15 600,000 133,650 26 commencing on or after 24 October 2009 but not later than 31 December 2020).

1,000,000 237,650 28 Income other than the above 10

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Employment income Valuations of some types of employment income are as follows: Gross employment income includes: ● Cars or other household items provided for private use can be valued at prescribed rates that are lower Cash remuneration Perquisites Benefits-in-kind than the actual cost incurred by the employer. Wages Petrol card / petrol Motorcar ● Rent-free accommodation provided by the employer Salary or travel allowance Household is valued at the lower of 30% of the employee’s total Leave pay Childcare subsidies / allowance furnishings & appliances cash remuneration (excluding equity income) or the Fees Income tax borne by employer Driver actual rental value. Commissions Domestic servant Bonuses Gardener The following are some exemptions for certain BIK: Gratuities Club membership ● Medical benefits, as well as childcare benefits provided by the employer. ● Leave passages, restricted to one overseas trip, up Living Pension / provident Compensation to a maximum amount of RM3,000, and three local accommodation fund Compensation for trips (including meals and accommodation) per Unfurnished living Receipts from loss of employment year. accommodation unapproved pension / provident ● Full or partial exemption in respect of a variety of provided by the employer fund arising from contributions allowances (e.g. allowances for parking and meals, made by the employer in travel/petrol, or childcare allowances) or other respect of the employee benefits (e.g. telephones, pagers, etc. registered in the name of the employee, monthly bills for telephones or broadband subscriptions, goods provided free or at a discount) for employees.

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Exemptions and concessional tax treatment for ● Expatriates working in approved Operational expatriates Headquarters, Regional Offices, International Procurement Centres, Regional Distribution Exemptions or concessions are given in certain Centres or Treasury Management Centres, based situations, such as: in Malaysia are taxed on a time apportionment ● Income tax exemption for non-resident employees basis in accordance with the employment income who are short-term visitors (other than public attributable to the number of days the employment entertainers), if the aggregate period(s) of is exercised in Malaysia. employment in Malaysia do not exceed 60 days. If a short-term visiting employee is resident in a country Deductions that has a double tax treaty with Malaysia, the qualifying period is generally extended to 183 days Expenses and other payments provided certain other prescribed conditions are Employees are allowed a deduction for any expenditure satisfied. wholly and exclusively incurred in the performance of ● Exemption for 50% of gross employment income for their duties. Non-business expenses, such as medical expatriates employed in a managerial capacity with expenses and taxes, are not deductible. Expenses of a a Labuan entity in Labuan, co-located office or private or domestic nature are expressly excluded from marketing office (until YA 2020). deduction. ● Exemption for an expatriate receiving fees as a director of a Labuan entity (until YA 2020).

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Personal relief Filing obligations and tax collection Personal reliefs are deductible from the total income of a tax resident individual to arrive at taxable income. Examples of personal reliefs given are: An individual will self assess and compute his own chargeable income and tax payable. Upon submission of YA 2019 (RM) the tax return form, the taxpayer is deemed to have been served with a notice of assessment for which tax is Self 9,000 due and payable. Annually, the due date for submission of individual income tax returns are: Spouse 4,000

Child ● 30 April for individuals without business income ● per child (below 18 years old) 2,000 ● 30 June for individuals with business income ● per child (over 18 years old) receiving full time instruction of higher education in respect of: 8,000 ○ diploma level and above (in Malaysia) Tax payments by employees are collected through ○ degree level and above (outside Malaysia) compulsory monthly deductions from salary or ● per child (over 18 years old) serving under articles of indenture in a trade or profession 8,000 bi-monthly instalment plan issued by the Inland Revenue Life insurance premiums 3,000* Board (IRB). The balance of tax payable upon computing the chargeable income for a year of Employee Provident Fund contributions 4,000* assessment is due and payable on the abovementioned Insurance premiums for education or medical benefits 3,000* submission due dates.

Medical expenses for self, spouse or child suffering from a serious disease 6,000*

*Maximum relief

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Other Taxes

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Sales Tax include the installation of machinery or equipment for the Rates of tax purpose of construction. In relation to petroleum, it The default rate of sales tax is 10%. There is a reduced Sales tax is implemented with effect from 1 September means any process of separation, purification, refining rate of 5% for certain goods which are listed in the First 2018 to replace Goods and Services Tax (GST). Sales conversion and blending. Schedule of the Sales Tax (Rates of Tax) Order tax is a single stage tax imposed on taxable goods 2018.There are also specific rates (e.g. RM0.30 per litre, manufactured in Malaysia by a registered manufacturer Registration and exemption from registration RM0.01 per kg, etc) for coal tar and petroleum products. or imported into Malaysia by any person. All goods are A manufacturer is liable to be registered if the total sales taxable goods unless they are specifically exempted by value of his taxable goods for a 12-month period Goods exempted order of the Minister of Finance. exceeds or is expected to exceed RM500,000. Certain All goods exported from Malaysia are exempted from manufacturing activities are exempted from the sales tax. There are also goods which are specifically Sales tax is a consumption tax, and under the system registration requirement. They include the developing exempted by order from the Minister of Finance. The full the onus is on the registered manufacturer to calculate and printing of photographs and production of film slides, list of goods specifically exempted is available in the the tax, levy it and collect it from its customers. In the the manufacture of ready mixed concrete, the repair of Schedule A of the Sales Tax (Goods Exempted from case of imported goods, sales tax is collected from the second-hand or used goods and the installation of air Tax) Order 2018. importer at the time the goods are cleared from customs conditioners in motor vehicles. control. Tax-free raw material Any manufacturer who is not liable to be registered for In order to maintain the single-stage concept, there are Manufacture sales tax or exempted from registration may nonetheless facilities available to allow for inputs (raw materials and Manufacture, in relation to goods other than petroleum, apply to the Director General (DG) of Customs for components) to be imported or acquired free of sales tax means the conversion by manual or mechanical means voluntary registration as a registered manufacturer. The by a registered manufacturer for use in the of organic or inorganic materials into a new product by DG of Customs may approve the registration to be manufacturing process. changing the size, shape, composition, nature or quality effective from a date he determines and subject to of such materials and includes the assembly or parts into conditions he deems fit. pieces of machinery or other products but does not

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Drawback Any sales tax that falls due during a taxable period, is Service Tax A person can claim drawback on the sales tax paid in payable to the Royal Malaysian Customs Department respect of imported or locally acquired goods, which are (RMCD) latest by the last day of the month following the Service tax is implemented with effect from 1 September subsequently exported. end of the taxable period 2018 to replace Goods and Services Tax (GST). Service tax is a consumption tax levied and charged on any Sales tax deduction A taxable period is a period of 2 calendar months, taxable services provided in Malaysia by a registered With effect from 1 January 2019, registered however, a taxable person can apply to the DG of person in carrying on his business. Service tax is also manufacturers can claim sales tax deduction on taxable Customs to vary the taxable period. If the application to charged on imported taxable services acquired by any raw materials, components or packing materials vary the taxable period is approved, the sales tax due is person who carries on a business in Malaysia. purchased from local traders and used solely in the payable to RMCD latest by 30 days from the end of the manufacturing of their taxable goods. The rate of sales varied taxable period. Rates of tax tax deduction is: The rate of service tax is 6% ad valorem for all taxable ● 2% of the total value of taxable goods purchased if Refund of sales tax on bad debts services except for the provision of charge or credit card the taxable goods were charged with sales tax of 5% A registered manufacturer or a person who has ceased services. Service tax for the provision of charge or credit ● 4% of the total value of taxable goods purchased if to be a registered manufacturer can apply for a refund of card services is RM25 per year on each principal card or the taxable goods were charged with sales tax of 10% sales tax in relation to bad debts. The conditions for the supplementary card. refund application are that: Payment of sales tax and taxable period o the whole or part of the sales tax paid has been Registration of taxable person and taxable services Sales tax is due at the time the taxable goods are sold, written off as a bad debt; and A taxable person is a person who is registered or liable disposed of otherwise than by sale, or first used o all reasonable efforts have been made by the to be registered for service tax. A person is liable to be otherwise than as materials in the manufacture of applicant to recover the sales tax. registered if the total value of his taxable services for a taxable goods, by the taxable person. However, in 12-month period exceeds or is expected to exceed the relation to the classes of petroleum that are subject to prescribed registration threshold. The term “person” sales tax, special provisions apply regarding the time includes an individual, a firm, a society, an association, a when sales tax is due and payable. company and every other juridical person.

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The following is a summary of taxable persons and their Group Taxable person Threshold Group Taxable person Threshold respective prescribed registration thresholds: (RM) (RM)

G Management services providers Group Taxable person Threshold D Operators of private clubs 500,000 (subject to some exclusions) (RM) E Operators of golf course or golf 500,000 Employment services providers A Operators of hotels, inns, lodging 500,000 driving range house, service apartment, homestay F Licensed operators of bettings, 500,000 Licensed private agencies (subject to some exclusions) sweepstakes, lotteries, gaming H Persons who are regulated by Bank Nil B Operators of restaurants, bars, 1,500,000 machines or games of chance Negara Malaysia and provide credit snack-bars, canteen, coffee house or card or charge card services through G Registered advocates, solicitors and 500,000 any place providing food and drinks the issuance of a credit card or a syarie lawyers whether eat-in or take-away (subject charge card to some exclusions) Registered public accountants I Licensed insurers or takaful 500,000 Catering services providers Licensed or registered surveyors / operators Operators of food court registered valuers, appraisers and estate agents Licensed/registered persons 500,000 C Operators of night-clubs, dance halls, 500,000 providing telecommunication services cabarets Registered professional engineers and contents applications services

Operators of 1st, 2nd or 3rd Class Registered architects Public House and 1st or 2nd Class Approved customs agents Nil Beer House Consultancy, training or coaching services providers (subject to some Operators of parking space for motor 500,000 exclusions) vehicles Operators of approved health and wellness centres and massage Information technology services Operators of motor vehicles service 500,000 parlours (subject to some exclusions) providers or repair centres

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Group Taxable person Threshold With effect from 1 January 2020, service providers A complete list of taxable persons and taxable services (RM) outside Malaysia who provide online services to can be found in the First Schedule of the Service Tax Malaysian consumers will be required to register in Regulations 2018. I Licensed courier service providers 500,000 Malaysia and charge service tax. Licensed hire-and-drive car, hire-car, 500,000 Intra-group services and exemption for specific B2B charter bus and excursion bus services Any person who is not liable to be registered for service services operators tax may nonetheless apply to the DG of Customs for With effect from 1 January 2019, certain professional Advertising services providers 500,000 voluntary registration as a registered person. The DG of services provided to companies within the same Customs may approve the registration to be effective corporate group would not be taxable subject to certain Providers of electricity transmission 500,000 from a date he determines and subject to conditions he qualifying criteria. In addition, specific taxable and distribution services deems fit. professional services provided by a registered person to Licensed airlines providing domestic 500,000 another registered person who provides the same flights Examples of taxable services include but are not limited professional service will be exempted from service tax. to the provision of accommodation premises, sale or Operators of amusement park 500,000 provision of food, drinks and alcoholic beverages, Payment of service tax and taxable period for certain professional services, certain telecommunication registered person Financial brokerage and underwriting 500,000 services, betting and gaming services, management Service tax is due when payment is received for the services providers services, security services, provision of parking space, taxable services rendered. If payment is not received Cleaning services providers (subject to 500,000 provision of golf course, golf driving range or services within 12 calendar months from the date of issuance of some exclusions) related to golf or golf driving range, courier delivery the invoice, the tax is due on the day immediately after services (other than to destinations outside Malaysia), the expiry of the 12-month period. domestic flight services, provision and issuance of charge card or credit card whether or not annual subscription or fee is imposed, and provision of electricity to domestic consumer.

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Any service tax that falls due during a taxable period, is Refund of service tax on bad debts payable to the RMCD latest by the last day of the month A registered person or a person who has ceased to be a following the end of the taxable period. A taxable period registered person can apply for a refund of service tax in is a period of 2 calendar months, however, a taxable relation to bad debts. The conditions for the refund person can apply to the DG of Customs to vary the application are that: taxable period. If the application to vary the taxable ● the whole or part of the service tax paid has been period is approved, the service tax due is payable to written off as a bad debt; and RMCD latest by 30 days from the end of the varied ● all reasonable efforts have been made by the taxable period. applicant to recover the service tax.

Payment of service tax on imported taxable service The service tax for imported taxable service is due at the earlier of the payment date or the date the invoice for the service is received. A taxable person is required to account for the service tax on imported taxable in its service tax return. However, a non-taxable person is required to account for the service tax on imported taxable service in a prescribed declaration (Form SST-02A) to the DG of Customs. The furnishing of the declaration and the payment of service tax due must be made latest by the last day of the month following the month in which the payment on the service is made or the invoice for the service is received.

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Import duties Value of goods Export duties The value of goods for the purpose of computing import Imports of goods are generally subject to import duties. duties is determined largely in accordance with the Export duties are generally imposed on Malaysia’s main World Trade Organisation (WTO) principles of customs commodities such as crude petroleum and palm oil for Rates of tax valuation. revenue purpose. Import duties are generally levied on an ad valorem basis, but they may also be imposed on a specific basis. Exemptions The ad valorem rates range from 2% to 60%. Raw Manufacturers may apply to the relevant authorities for materials, machinery, essential foodstuffs, and exemption from import duties for the following: pharmaceutical products are generally non-dutiable or ● raw materials and components used directly for the subject to duties at lower rates. manufacture of goods for export and domestic markets. Tariff rate quota ● dutiable machinery and equipment which are used With effect from 1 April 2008, Malaysia implemented tariff directly in the manufacturing process. rate quota (TRQ) on selected agricultural products, such as chicken, milk and cream, hen eggs, cabbages. Under Prohibition of imports TRQ, the tariff charged depends on the volume of Import restrictions are seldom imposed except on a imports. Imports within quota (volume) attract duties at a limited range of products for protection of local industries lower tariff rate while a higher tariff rate applies on goods or for reasons of security and public safety. An import in excess of the quota volume “out-quota tariff rate”. The licence has to be obtained for the importation of quota applicable is determined by the relevant agency, prohibited goods. e.g. Department of Veterinary Services.

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Excise duties A warehouse licence is required for storage of goods subject to excise duty. However, a licence to Excise duties are imposed on a selected range of manufacture tobacco, intoxicating liquor or goods goods manufactured in Malaysia or imported into subject to excise duty also permits the holder to store Malaysia. Goods which are subject to excise duty such goods. include beer/stout, cider and perry, rice wine, mead, undenatured ethyl alcohol, brandy, whisky, rum and Rates of duties other spirits obtained by distilling fermented sugar-cane The rates of excise duties vary from a composite rate of products, gin and geneva, cigarettes containing RM 1.10 and 15% for certain types of spirituous tobacco, motor vehicles, motorcycles, playing cards and beverages, to as much as 105% for motorcars mahjong tiles. No excise duty is payable on dutiable (depending on engine capacity). goods that are exported. Payment of duty The excise duties on certain sugar sweetened As a general rule, duty is payable at the time the goods beverages are proposed to come into effect on 1 July leave the place of manufacture. However, for motor 2019. vehicles, duty is payable at the time the vehicles are registered with the Road Transport Department. Licensing Unless exempted from licensing, a manufacturer of tobacco, intoxicating liquor or goods subject to excise duties must have a licence to manufacture such goods.

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Stamp duty Transfer of properties in general (other than shares and marketable securities)

Stamp duty is chargeable on instruments and not on Portion of total value Rate Stamp duty payable transactions. (RM) (RM) On the first 100,000 RM1 per RM100 or part thereof 1,000 Stamp duty rates Stamp duty rates vary according to the value of its underlying transaction which is generally taken to be On the next 400,000 RM2 per RM100 or part thereof 8,000 the higher of actual consideration or market value. On the next 500,000 RM3 per RM100 or part thereof 15,000

1,000,000 24,000

In excess of 1,000,000 RM4 per RM100 or part thereof *

* The rate on the portion of the value in excess of RM1 million is RM3 per RM100 or part thereof for an instrument stamped on or after 1 January 2019 but not later than 30 June 2019 in respect of a property valued not more than RM2.5 million.

Transfer of shares not listed on stock exchange

RM3 for every RM1,000 or any fraction thereof.

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Loan, services and equipment lease agreement

Stamp duty rate is 0.5%. Reduced rates are available as follows: i) Service agreement: ii) Loan agreement:

Reduced stamp duty rate Reduced stamp duty rate

All service agreement (one tier) 0.1% Loan agreement without security and Ringgit Malaysia 0.1% repayable on demand or in single bullet loan Multi-tier service agreement repayment a) Non-government contract (i.e. First level 0.1% between private entity and service Subsequent 0.1%, capped at RM50 providers level(s)

b) Government contract (i.e. between First level Exempted Federal /State Government of Second level 0.1% Malaysia or State / local authority and service providers) Subsequent 0.1%, capped at RM50 level(s)

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Stamp duty relief Real Property Gains Tax (RPGT) Relief from stamp duty is available for various instruments. In relation to transfer of properties between Malaysia imposes a limited form of capital gains tax, i.e. RPGT. RPGT is imposed on gains arising from the disposal of related companies, the following reliefs are available: real property including shares in a real property company (RPC).

1. Transfer of properties between associated Real property is defined as any land situated in Malaysia and any interest, option or other right in or over such land. companies. Associated companies are essentially companies where either company owns 90% or RPC is essentially a controlled company where its total tangible assets consist of 75% or more in real property and/or more of the other company or where a third shares in RPC. A controlled company is essentially a company owned by not more than 50 members and controlled by company owns 90% or more of both companies. not more than 5 persons.

2. Transfer of properties pursuant to a scheme of Disposal from the date of Companies Individuals (citizens & Individuals ( citizens & reconstruction or amalgamation of companies. non- acquisition permanent residents) non-permanent residents)

Within 3 years 30% 30% 30%

In the 4th year 20% 20% 30%

In the 5th year 15% 15% 30%

In the 6th year onwards 10% 5% 10%

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Windfall profit levy Employers in the manufacturing sector whose paid-up capital is less than RM2.5 million and with 10 employees A levy is imposed on crude palm oil and crude palm and above but less than 50 employees may opt to be kernel oil where the price exceeds RM2,500 per metric registered and make levy payments at the reduced rate ton in Peninsula Malaysia, and RM3,000 per metric ton of 0.5 % of the employees’ monthly wages. in Sabah and Sarawak. Assessment, quit rent and road tax Contract levy Assessment rates and quit rent is payable by property A levy of 0.125% on contract works having a contract owners according to the legislation of the local or sum above RM500,000 is imposed on every registered municipal authorities on properties located in areas contractor by the Construction Industry Development under their jurisdiction. Essentially, these levies are Board (CIDB). intended for the maintenance and the provision of essential services to the areas. The tax is levied as a Human Resource Development Fund (HRDF) levy percentage of the capital value or the taxable value of the property. Employers engaged in the manufacturing and services sectors that employ more than a specified number of Road tax is levied on owners of motor vehicles at rates employees must contribute to the HRDF. The levy that vary according to the type of vehicle and engine required to be paid is at the rate of 1 % of the capacity. employees’ monthly wages on a monthly basis.

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About PwC

PwC | Doing Business In Malaysia 2019 67 CONTENTS About PwC

Delivering the value you’re looking for

PwC operations in Malaysia Assurance services Tax services

PwC’s history in Malaysia dates back to the early 1900s. We help organisations improve their external financial We work with clients to develop approaches and Over the years, we have worked with many different types of reporting and adapt to new regulatory requirements, solutions to critical tax and business issues given our clients - global companies, public sector entities, growing such as the Financial Reporting Standards. Our audit understanding of technical issues and compliance. businesses and up-and-coming entrepreneurs. With our clients include many leading companies listed on Bursa assurance, tax and advisory services, we help our clients Malaysia as well as emerging Malaysian companies. We help formulate effective tax strategies, innovative succeed through both buoyant and challenging economic tax planning to optimise your tax efficiencies and environments. We also help clients respond to the need for greater contribute towards your overall corporate strategy. transparency, improved corporate governance and Our aim is to deliver value to you at all times. How we use business models, based on the principles of our knowledge and experience to deliver that value, sustainability. depends on what you want to achieve. We'll start by asking questions to get to know you and your business better. Are Deals services Consulting services you looking to build trust? Give your shareholders more value? Or do you want to do something new with your We help clients do better deals and create value On 1 August 2013, the PwC Consulting business in business? through mergers, acquisitions, disposals and Malaysia become part of our South East Asian restructuring. Consulting joint venture. You can expect, when working with anyone of our people in Kuala Lumpur, Pulau Pinang, , Melaka, , We work together with clients to help develop the right By bringing together our expertise across the region, , and Labuan that we'll help you recognise what strategy before the deal, execute their deals we help organisations to work smarter and grow faster. your business needs are. Then we'll work with you to identify seamlessly, identify issues and points of negotiation We consult with our clients to build effective the goals critical to your corporate strategy. and value, and implement changes to deliver synergies organisations, innovate and grow, reduce costs, and improvements after the deal. manage risk and regulation, and leverage talent.

PwC | Doing Business In Malaysia 2019 68 CONTENTS About PwC

Delivering the value you’re looking for

Our Offices Contacts

Assurance Kuala Lumpur Soo Hoo Khoon Yean Level 10, 1 Sentral Partner Jalan Rakyat T: +60 (3) 2173 0762 Pulau Pinang Kuala Lumpur Sentral E: [email protected] 16th Floor, Bangunan KWSP 50470 Kuala Lumpur Labuan Jalan Sultan Ahmad Shah T: +60 (3) 2173 1188 Level 13F, Main Office Tower 10050 Pulau Pinang F: +60 (3) 2173 1288 Financial Park Labuan Tax T: +60 (4) 238 9188 Jalan Merdeka Jagdev Singh F: +60 (4) 238 9288 87000 Federal Territory of Labuan Senior Executive Director T: + 60 (87) 42 2088, 42 1618 T: +60 (3) 2173 1469 F: + 60 (87) 42 2198 E: [email protected] Ipoh Standard Chartered Bank Chambers 1st Floor, 21-27, Deals services Jalan Dato’ Maharaja Lela Kuching Tan Siow Ming 30000 Ipoh, Perak Level 2 (West) & 3 (West) Senior Executive Director T: +60 (5) 254 9545 Wisma STA, 26 T: +60 (3) 2173 1228 F: +60 (5) 253 2366 Jalan Datuk Abang Abdul Rahim E: [email protected] Melaka 93450 Kuching, Sarawak Johor Bahru Level 15-1, Tower B T: + 60 (82) 52 7218 Level 16, Menara Ansar Jaya 99 F: +60 (87) 52 7228 Consulting services 99 Jalan Tun Sri Lanang Jalan Trus Andrew Chan 75100 Melaka 80000 Johor Bahru, Johor Partner T: +60 (7) 222 4448 T: +60 (6) 283 6169 T: +60 (3) 2173 0348 F: +60 (6) 284 4368 F: +60 (7) 224 8088 E: [email protected]

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